Space for private equity in Saudi’s grand vision

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Saudi Arabia has made it clear that by 2030 it wants to shift its reliance on oil revenue and become one of the world’s biggest investors.

The Public Investment Fund is aiming to become the world’s largest sovereign wealth fund and expects its assets under management to grow from $250 billion to more than $400 billion by 2020 and $2 trillion by 2030. To achieve this, the kingdom is looking to raise $100 billion by selling about 5 percent of state oil company Saudi Aramco, with the proceeds controlled by PIF.

It is also looking for increased performance, and that’s where private equity – including infrastructure and venture capital – comes in.

Return targets have hovered around 3 percent for PIF; it is aiming to generate between 4 percent and 5 percent in average annual returns by 2020.

PIF started ramping up its international activities in 2016, when it picked up a $3.5 billion stake in ride hailing giant Uber. The SWF was the lead investor in SoftBank’s record-breaking $93 billion Vision Fund, to which it committed $45 billion in September. It also pledged to invest up to $20 billion in Blackstone’s debut infrastructure fund, which is seeking $40 billion, and invested $1 billion in spaceflight company Virgin Galactic.

The acquisition spree continues into 2018, with deals in entertainment, hospitality and renewable energy – sectors it believes will transform Saudi Arabia’s economy.

It signed deals with Chinese-owned cinema chain AMC Entertainment. Discussions to buy hotel group Accor and media company Penske are said to be in advanced stages. It also unveiled the New Solar Energy Plan 2030 in March, a grand project with SoftBank’s Vision Fund that will see the development of solar generation projects with up to 4.2GW of capacity by 2019.

“All of these companies, if you look at them, they have outstanding growth rates,” Yasir Al Rumayyan, managing director at PIF, said at the Saudi-US CEO Forum 2018 in New York in April. “They’re very disruptive and I think it will add a lot of value to our portfolio. The returns are the main thing we’re considering. We also see the new trends coming to our future and we want to enable some of the new sectors and industries and make them more practical.”

The investor also aims to gain knowledge and technology transfer through its investments and strategic partnerships with the biggest names in private equity and technology.

PIF is also looking to back French private equity GPs focused on growth capital, buyouts and private debt over a period of seven years. It plans to increase foreign investments from the current level of 5 percent to 50 percent by 2020 and hopes to double its team to 480 employees by year-end and to open office in the US, UK and Japan in the short term.

With its commitments to SoftBank and Blackstone, PIF has already proven itself to be a transformative source of capital for fund managers. If its expansion plans stay on track, its power to shape the course of private markets will only increase.